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Egypt's Future

Volume XXIII

Summer

Number 2

Robert Mason

Dr. Mason is a lecturer in the political science department at the British University in Egypt.

The Egyptian state has accumulated a number of obstacles over the last three decades that have affected its ability to maintain a leadership position in the Middle East and North Africa (MENA). Egypt retains some characteristics of a regional power, although it is questionable whether any MENA state possesses the combination of military, economic and demographic resources to project power effectively.1 This paper identifies some significant domestic impediments that may need to be addressed before Egypt can improve state capabilities, harness substantial domestic resources and realize its human and economic potential. Some of the issues relate to the political uncertainty caused by the revolution of 2011 and the ousting of President Morsi in 2013, the inability of Western-backed civil-society groups during the Mubarak era to advance a good-governance agenda,2 and the social fracture and security threat posed by groups such as the Muslim Brotherhood (MB) and its supporters. Unrest in Sinai and events in Libya should also be factored into the security equation.

The domestic challenge from Islamist groups has been evident in Egypt since the 1950s; and, throughout the 1980s and 1990s, groups such as Al-Jamaa Al-Islamiya and Al-Jihad tried to usurp President Mubarak's legitimacy. This challenge led him to rely on his military background and remain security centric in policy making.3 Egypt became ostracized in the Arab world after President Sadat signed a peace treaty with Israel in 1982. Then Saddam Hussein's miscalculation during the Iran-Iraq War removed Iraq's chance to become a new Arab leader to the benefit of Egypt, making Iraq dependent on Egyptian technical and military assistance, and led Baghdad to resume links with Cairo — which quickly became a trend among Arab states.4 Since then, apart from responding to urgent external threats, the Egyptian elite has remained preoccupied with internal problems. This has impeded its ability to lay out either an ambitious economic-development agenda or a proactive foreign policy. Egypt's economic infitah (opening), implemented under President Sadat in 1974, led to the establishment of a class of "crony capitalists," linking businessmen closely to bureaucrats for their mutual interest. This may have been a step towards greater liberalization, as outlined by the so-called "Washington Consensus," but the national economy has not moved beyond that stage. President Mubarak rolled back both the welfare system and elements of food security in favor of further liberalization. By the mid-1990s, the economy was firmly on the privatization track, including the privatization of many state-owned enterprises (SOEs), but this exacerbated the increasing social divide between the haves and have-nots.5

By the mid-2000s, a new social movement called Kifaya (enough) was established by the Egyptian Movement for Change, which cut across the political spectrum from Islamists to nationalists. Its broad message included ending dictatorship and nepotism (President Mubarak was trying to maneuver his son Gamal to succeed him), ending the emergency laws that restricted freedom of the press and association, and releasing thousands of political prisoners.6 It was clear President Mubarak was not going far enough in his political reforms. However, a small part of the protest was also about what was seen to be the impunity that the elite, including Gulf elites, enjoyed in Egypt. For example, in 2005 there was a car race between a Qatari national and Egyptian national on the main road to the Cairo airport. In the crash, including the deaths of five pedestrians, and poor medical and police responses that followed, much of the Egyptian anger focused on the police, who allowed the Qatari driver, a prince, to flee back to his country without answering to charges.7

After the ouster of President Mubarak in 2011, the United States, Iran and Turkey all agreed that what had happened in Egypt would affect the whole region.8 Qatar welcomed the MB's rise in Egypt with open arms; the other GCC states, Saudi Arabia and the UAE in particular, perceived the organization as a direct threat to their governing systems. Qatar was able to leverage its pre-existing relationship with the MB when they took power in 2011 and capitalize on it, primarily through the facilitation of investments. The alliance was relatively unimpeded due to the speed at which Mubarak was forced to depart from the presidency and the frailty of King Abdullah of Saudi Arabia at the time. However, the rewriting of the Egyptian constitution in 2012 to favor the MB's own ends did nothing to extinguish growing public suspicion of its motives.

Following the popular military-backed "coup" in 2013 — and with Morsi languishing in jail on a range of charges from fraud and espionage to conspiring to commit terrorist acts9 — President Sisi is pushing ahead with some political and economic reforms. So far, he has implemented megaprojects such as the military-built extension of the Suez Canal, which was completed in 2015. This is expected to provide much-needed jobs and $100 billion per year in additional public revenues from associated economic, business, industrial and logistical activities.10 Whether the investment pays off remains to be seen. As John Chalcraft notes, we are still in a transitional period, when workers, urban youth and the poor — who formed the core of popular protests in Cairo — are giving the "patriotic, honorable and brotherly military" a chance to manage a number of political, economic and social challenges.11

During this period, it is useful to reflect on what Mamoun Fandy identifies as the three core domestic issues that could be important to changing Egypt's place in the regional order:

• The capacity to transform the economy and integrate it into the global economy

• The maintenance of balance with the military in order to avoid another military-led coup

• Control over the Islamist challenge12

The following factors are also worth reviewing in this context:

• The Egypt-GCC states ideological alliance (minus Qatar post-2013) against Islamist threats and consolidation against a possibly resurgent Iran after the nuclear deal with the P5+1

• Longer-term soft-power erosion

THE ECONOMY

Egypt, Tunisia, Morocco and South Africa are the four most advanced economies in Africa. Egypt also has one of the most developed and diversified economies in the Middle East. In 2012, the statistical breakdown of the economy was as follows:

• Mining, including oil (17.3 percent)

• Manufacturing (15.6 percent)

• Agriculture (14.5 percent). Although Egypt still imports meat, wood and grain, between 1993 and 2005 there was a decrease in the areas cultivated for cotton and staples such as wheat and dry beans in favor of high-cost fruit, vegetables and flowers

• Wholesale and retail trade, hotels and restaurants (14.1 percent)

• Public administration, education, health and social work, community, social and personal services (10.4 percent)

• Finance, real estate and business services (9.4 percent)

• Transportation, storage and communication (8.6 percent)

• Construction (4.6 percent)

• Other services (3.8 percent)

• Electricity, gas and water (1.6 percent)13

Although per capita incomes have improved, large income disparities continue to grow. From 2004, tourism was recovering from security operations against Islamist attacks, and the economy was being liberalized: income taxes and tariffs were being cut, and the Egyptian pound was being floated. Annual GDP growth moved up to 7.2 percent in 2007-08.14 From 2002 to 2006, labor- and capital-intensive exports rapidly increased but collapsed with the 2007 global economic crisis. This also affected the tourism industry, Suez Canal receipts and workers remittances.

The Egyptian economy has been in a state of crisis again since the Arab Spring. President Morsi was unable to secure an IMF bailout due to its strict terms. The MB-led government therefore turned to Qatar to help sustain Egypt's minimum budgetary requirements. Allegations that President Morsi was about to sell off the pyramids or the Suez Canal — a conspiracy — quickly undermined the new alliance.15 The MB was already considered un-Egyptian due to its exclusive and, at times, extreme ideological position, as well as its links to Hamas. Allegedly unconditional Qatari aid, around $8 billion promised by 2013,16 was finally interrupted by the 2013 military-backed "coup".

After a popular coup in 2013 in which President Morsi was ousted, Saudi Arabia, Kuwait and the UAE moved swiftly to replace Qatar as Egypt's most important donors. Between 2013 and the Sharm El Sheikh conference in 2015, Riyadh and Abu Dhabi had committed more than $20 billion to support the Egyptian government.17 To put these figures into context, the budget deficit ran at 253 billion Egyptian pounds (around $33 billion), or 12.4 percent of GDP, in the 2013-14 fiscal year.18 Fuel subsidies alone amounted to $20 billion a year, before they started to be drawn down in 2014.19 There is no doubt that GCC state financing has closed fiscal gaps, but they cannot continue to float an economy of 86 million people.

GDP growth is expected to be just 3.3 percent in the 2016 financial year, hampered mainly by inadequate foreign exchange and the strong Egyptian pound, which has affected Egypt's international competitiveness.20 Still, The Economist Intelligence Unit believes average growth could return to 4.2 percent in the 2016-20 period if political stability improves and economic reforms progress.21 While internal trade remains robust, continued struggles with an Islamist insurgency could take tourism and investment longer to recover. The security environment, tourist-visa regime and investment climate have all been in flux. Egypt needs stable governance in order to push ahead with a financial and regulatory framework aimed at enhancing investor confidence. Such structural change requires a political reorientation that includes pluralism, transparency and due process as its pillars.

Economic relations among Egypt, Saudi Arabia, Kuwait and the UAE have strengthened further since the 2015 economic conference held in Sharm El-Sheikh, which all four states helped organize. This gives some cause for longer-term optimism on the economy. For example, Egypt secured $12 billion from Saudi Arabia, the UAE, Kuwait and Oman during the conference, although half has already been committed to support the Egyptian central bank. Further commitments, notably from UAE construction firms such as Aabar and Capital City Partners, were made for projects including the building of a new administrative capital between Cairo and the Red Sea.22 Other megaprojects — involving grain storage, for instance — remain difficult to implement but are vital to reducing Egypt's reliance on imported grains, especially wheat, a key ingredient in subsidized bread. It is also needed to reduce reliance on imported fava beans for the staple foul. Millions of poor Egyptians rely on both of these foods each day. The grain-storage project would be difficult for any state to achieve but has been made more so by being announced and then changed without any feasibility studies having first been conducted. The initial project was expected to be spearheaded by an Egyptian company run by a former army officer, backed by UAE funding. However, by November 2014, the grain-storage facilities had been folded into a larger project focused on making Egyptian seaports such as Demietta part of a regional hub for processing and re-exporting millions of tons of wheat, soybeans, sugar and other commodities.23 In the meantime, Egypt is increasingly dependent on the United States, Russia and Europe for its food security.

The other problem is that megaprojects — specifically, geographically centralized ones such as the new administrative capital — are not effective in generating trickle-down effects for the many millions living below, or close to, the poverty line. Companies such as Emaar and Aabar might have experience in developing the Dubai skyline, but that is not all the UAE is doing to establish its rapid economic growth. Abu Dhabi has used its oil revenue to invest in making its key industries such as tourism, high-tech-heavy industries, manufacturing and finance internationally competitive. Of course, it has more money at its disposal, but the principles of building up its higher education sector, generating more jobs and creating more competitive businesses through joint ventures, are transferable.

Arabtec, another Emirati company, has experienced delays in the housing sector; the contract is still under negotiation, as the Egyptian Ministry of Housing has asked for a higher percentage of residential units than originally agreed upon.24 A solution is likely to be found, given the extent to which Egypt is reliant on companies such as Arabtec to deliver relatively affordable housing. In the meantime, most housing remains focused on compound construction in 6th October City.25 UAE, Saudi and U.S. companies interested in Egyptian real estate may find that, as with the USAID housing project in Helwan in 2001, they are not able to control implementation. This could have a serious knock-on effect to broader Egyptian housing objectives such as creating the necessary projects that address high demand for low-income housing.26 Although the UAE has been involved in many aid projects and has a close working relationship with the Egyptian government, such complications could potentially affect other commercial projects, aid flows and, ultimately, the strength of the bilateral relationship.

After the Sharm El-Sheikh conference, non-GCC state investments came from companies with a presence already in Egypt, such as Siemens, which is working on enhancing the power supply; Eni, which is involved in oil and gas projects; and BG Group, which is involved in natural-gas projects.27 In August 2015, President Sisi met with the CEO of British Gas and issued a statement to assure international oil companies that Egypt would honor its debts and ensure continued investment in this strategic sector.28 In the case of Eni, a new agreement has been made that will help increase the "security of return on Eni's investments"; this kind of renegotiation and restructuring could perhaps attract other international oil companies back to the Egyptian market.29 This is particularly important in light of the new "super-giant" gas field that ENI found off Egypt's Mediterranean coast. The so-called Zohr project could turn Egypt into a gas exporter for decades to come, although it will take years to get the field up and running on a commercial scale.30

Even given current challenges, it is possible for Egypt to maintain its position as a rising economy within the emerging economic bloc dubbed CIVETS, which includes Colombia, Indonesia, Vietnam, Turkey and South Africa. Like its fellow members, Egypt has a young population and therefore a large potential workforce, but it also has resources — minerals, geography (a gateway between the Middle East and Europe) and a diversified economy — that could help boost its economy in the long term. President Sisi knows he does not have much time to implement his domestic policy agenda before his term ends, or public impatience sparks more social unrest. Stability and national security are also important, so he must tread carefully. This will dictate the pace at which subsidies are reduced or removed, taxes are increased in some areas, and whether or how the military's role in the economy is normalized.

State central planning policies that protect a large internal market, Egypt's resources, and easy access to Gulf capital have not produced a sufficiently outward-looking orientation. The Egyptian government thus needs to consider associating itself with a free-trade area rather than simply opening up for foreign direct investment (FDI). Changes could also lead to more knowledge transfer in areas such as stock-market and other regulatory agencies and an increase in foreign stakes in start-up companies. Private enterprise is generally considered to be in a much better position to provide jobs for youth, so balancing out megaprojects with more encouragement for small and medium enterprises could have significant results in this important area. Western-backed calls for reforms that encourage greater political pluralism and further economic liberalization should not be misconstrued as imperialism, but simply as promoting a better functioning society for the benefit of all.31

EMULATING THE ASIAN MIRACLE?

When attempting to compare Egypt with other rapidly developing economies such as the Tigers of Southeast Asia — Hong Kong, Singapore, South Korea and Taiwan — which have enhanced their state capabilities significantly through building up an export-orientated economy, it is clear there are some major differences. Southeast Asian states started off poorer than most African states and had to grapple in the 1960s with high birth rates and declining death rates, which did not seem conducive to achieving high economic growth. However, East Asia did finally transition to a period of low fertility.32 Demographic change coupled with large migration inflows in states such as Taiwan and South Korea helped secure a "demographic bonus" by boosting the number of people of working age in labor-intensive export industries. Although there is debate about what drove economic development in each case, education and internationally competitive export policies, industrialization, openness and insulating politicians from special interests all played a role in sustaining rapid growth (more than 6 percent per annum) over the last 50 years.33 Many of these economies went on to become leading consumer economies.

In contrast, Egypt is currently grappling with population growth of an additional 1.5 million people per year, even if the Total Fertility Rate (TFR) declines as expected to two children per woman by 2020 (from three between 2000 and 2005).34 Springborg notes that fuel accounted for about half of Egypt's exports in the years immediately preceding the revolution but were not high enough to warrant Egypt's classification as a rentier economy with all the associated distributive elements.35 Neither has Egypt attracted FDI in amounts that could jumpstart large-scale, internationally competitive manufacturing. These industries are deemed critically important for the transition from subsistence agriculture to higher incomes and living standards.36 Although Egypt has developed a formal exchange sector of its economy, there is also an informal subsistence economy, so development is as much about integration of the two as it is about further development.

Lee Kuan Yew of Singapore is an excellent example of a single leader who, over a span of just three decades, managed to shift his resource-scarce city-state from the third world to the first. His strong, even authoritarian, leadership helped to realize economic development objectives in Southeast Asia. However, authoritarian states have only been successful at sparking rapid economic development when they have tolerated or facilitated the economic and social transformation that has led to some degree of shared prosperity.37 Export growth was also largely a response to domestic stability, economic freedom and adequate infrastructure in addition to a healthy rural economy.38

Malaysia is a good example of a democratic state with limited resources — tin and palm oil — that was able to adapt, set strategic priorities through five-year plans, and implement actions that work to its strengths. The Malaysian prime minister sent his own son to a foreign university in a high-profile act of knowledge exchange and acquisition. The state has set up research institutions, related medical research directly to hospitals, and resettled some of its poor through an innovative land-tenure and microcredit system. Malaysia makes education compulsory from kindergarten, and many Malaysian companies have invested in their own specialized higher-education institutions.

Japan, on the other hand, rebuilt after World War II with an emphasis on leadership from the Ministry of International Trade and Industry. It identified key recovery sectors (e.g., steel and shipbuilding) and then negotiated with the Bank of Japan to provide loans to companies working in these industries, and liaised with the Foreign Ministry to set policies that favored those same Japanese companies.39 Sometimes mergers were forced in order to create more competitive companies domestically and abroad.

CIVIL-MILITARY RELATIONS

Intricately linked to Egypt's political course and the growth of its economy is the role of the military. It is the largest in Africa and the Middle East, numbering around 450,000,40 composed of the army, navy, air force and air-defense command. There are also large paramilitary groups, including the central security forces (under the Ministry of Interior), border guard forces and the national guard (under the Ministry of Defense).41 The military have their own hospitals, villages, education institutions, gasoline stations, factories and companies. It is the only properly functioning state institution.42 Although Egypt's military spending, at 1.7 percent of GDP in 2014, is relatively low, the military accounts for about a third of Egyptian GDP through its various economic activities.43 This creates a grey or "ambivalent" economy of military-run enterprises that have no stake in the economy as a whole.44 The government is therefore effectively working with its hands tied, trying to find solutions to the current economic crisis with only two-thirds of the economy to work with. Retired generals, often in their early 40s and 50s, are able to easily penetrate the upper echelons of the mainstream economy. Although some officers have foreign military training, few can boast an MA, PhD or civilian administrative and IT skills necessary in the modern workplace.

In the 1950s, the military monopolized the political arena, and Nasser's socialist policies broadened its military's responsibilities. Decreased military spending after the 1979 peace treaty with Israel meant that the military had to find alternative sources of revenue. This was especially important as many in the business elite had allied themselves with the police to compete with the dominance of the military.45 The survival of military businesses has thus been due to a combination of control over the businesses they run, over local government (18 out of 27 provincial governors are retired army generals),46 and over regulatory authorities that have cut the red tape for military-led economic projects.47 Immunity from legislative bodies creates a high-risk environment for corruption. However, the military also played a beneficial role in the final years of the Mubarak presidency, stepping in to address government failures in areas such as the provision of subsidised bread and through public projects, such as construction.

The 2014 constitution, drafted during the period when the Supreme Council of the Armed Forces (SCAF) acted as the de facto government in Egypt, secured the long-term interests of the military. There was no other power able to object. The Ministry of Defense has become a largely autonomous institution with special powers (institutional autonomy, legal immunity and other constitutional rights).48 The minister of defense can be appointed from the officer corps with a term lasting two presidential administrations (eight years). The constitution also omits any reference to civilian oversight of the armed forces, in general, or regarding specific economic activities such as selling land and assets. Indeed, Law No. 313 of 1956, which is still in effect, prohibits the publication of any news about the military, shielding it from both public and political scrutiny.49 Although security matters can be discussed in the National Security Council (NSC), it is more likely that decision making will take place in the National Defense Committee (NDC), dominated by military representatives (nine military versus five civilians) in the SCAF or directly with the office of the president.50

The conversation about the military's role in politics has not even begun (it is generally considered a taboo subject), yet such a debate remains vital to the long-term success of both political and economic reforms. Transition to civilian oversight and control of the armed forces could be particularly problematic. The dominant role of the military is so ingrained that it will be hard to even conceptualize new policies. A recent study by Oxford University and Cairo University found that two-thirds of Egyptians surveyed supported a "guardian army" to intervene in politics wherever necessary.51 Although the same percentage also supported democracy as the best form of government, most Egyptians are not prepared to wait for elections in order to ensure stability.52

There are other challenges that need to be overcome. On the military side, legitimate concerns about reform would need to be discussed in private to avoid compromising national security, but in order to avoid bias, the number of military and civilian representatives should be equal. Discussions should also be free from intimidation of the kind that has been reported against political opposition figures. Dialogue should focus on the military's influence over politics as well as its role in the economy, but not necessarily with a view to dismantling military-operated companies. This would be folly, given its dominance in national megaprojects, competitive pricing and rapid completion rates in some important public-sector projects. But a new agreement to provide clarity on military participation in, and influence over, the economy should be formed based on directly addressing the following:

• State preferences in awarding contracts and the types of contracts that can be awarded, including a more transparent tendering process53

• The creation of a transparent land registry (forcing the military to give up first refusal on every piece of land)54

• The question of conscript labor and labor rights55

• The military's relationship with regulators

• The use of state subsidies

• Payment of taxes by military-run businesses (a broad issue across all enterprises)56

While the prospects for implementing security-sector reforms remain low due to the legacy of the conflict with Israel, the affordability of national-security bodies and the clearly negative legacy of the U.S. invasion of Iraq (where the security apparatus was completely removed), Egypt's international partners can only continue to support a re-evaluation of the security-centric mindset. The United States since 1987 has seen fit to support the Egyptian military far more than any other civil society endeavors, with $1.3 billion a year in hardware transfers (mainly tanks and fighter jets).57 Although it is doubtful that the Egyptian military would have fundamentally changed its stance on human rights if U.S. military aid had been canceled rather than suspended between October 2013 and March 2015, it does send a signal that domestic politics is a secondary concern to cooperation on crises such as Yemen and Libya.58 However, Egypt was already leading calls for an Arab League force to address the crises in Yemen, Iraq, Syria and Libya, in effect making primary U.S. policies towards Egypt, and the necessity for accompanying incentives, redundant.59 Relying on arms transfers such as tanks and fighter jets is also regarded as ineffective in addressing terrorism and insurgent threats, and runs against the advice of some U.S. military advisers.60

U.S. arms supplies may well support bilateral relations and Camp David compliance, secure U.S. defense jobs, and support an Egyptian military doctrine that is focused on maintaining relative parity with Israel in some areas of conventional weaponry.61 While some, such as former U.S. ambassador to Egypt Frank Wisner, supported the lifting of U.S. military aid to Egypt in favor of continuing security relations, it also reinforces the status quo.62 Furthermore, the military-military relationship massively outweighs non-military aid. Amid a domestic economic crisis in Egypt, the Obama administration only saw fit to request $150 million in economic aid for the 2016 financial year.63 The lack of non-military aid reflects the fact that Egypt has not yet met the U.S. congressional condition of taking "steps to support a democratic transition," which would be required before more substantial support might be forthcoming.64 The debate over aid to Egypt has been raging in the United States for more than 40 years; absent a clear donor framework and productive base in which to invest, non-military aid is not perceived to have any real impact. Certainly qualified industrial zones (QIZ), which are supposed to encourage Egyptian and Israeli economic cooperation, do not appear to be delivering the desired results. For example, the combined QIZ of Jordan and Egypt with Israel amount to $1 billion in exports each year.65 A free-trade agreement (FTA) with the United States is another possibility, but it would place more restrictions on investments and intellectual property rights; this could be problematic, as it was for Chile.66 Furthermore, Egypt's major industries — oil, steel and textiles — would be unaffected by an FTA, so its impact would be relatively small.67

After the Egyptian presidential election, the U.S. congressional focus turned to the parliamentary elections of October and December 2015.68 Voter turnout was low, an indication that Egyptians are already losing hope for meaningful change.69 From a cursory survey by the author of those who did not vote in October 2015, some at least (mainly younger people) were concerned that new MPs would not act on behalf of their new constituents but merely serve their own interests. While the status quo will no doubt lead to a semblance of stability in Egypt, if economic reform cannot be secured over the coming years, it is likely to lead to further social unrest.

THE MUSLIM BROTHERHOOD

Regulating the relationship between the military and the MB (and the various strands of thought within it) will be an important step in Egypt's political transition. Both sides, including the Free Officers and the MB, managed to work together during the 1952 coup to oust a weak democratic government working under a more powerful monarch and British consul-general.70 However, cooperation did not last long, and by 1954 the MB were demanding a return to civilian rule. Nasser's crackdown led to the arrest of many protesters, the court-marshalling of those in the military, and the implementation of a military-dominated system including a state-controlled economy and a ban on political parties.71

This trend was repeated in 2013 after the ouster of President Morsi, when the military intervened under emergency law and banned the Muslim Brotherhood.72 During the transitional process, the army re-established itself as the dominant political force and gave some political parties disproportionate influence in the political process. For example, after the 2013 popular coup, Hezem al-Beblawi and Ziad Bahaa Al-Din, the prime minister and deputy prime minister, respectively, were selected by the SCAF from their Social Democratic party, which had only won 16 seats in the parliament, or 3.1 percent of the popular vote.73 Mohamed ElBaradei, the Nobel laureate and former head of the International Atomic Energy Agency (IAEA), who served as the first vice president in the new government, resigned in July 2013 on the same day as the Raba massacre.74

Islamist activists have long resisted Cairo's political, economic and cultural dominance but have been left with no legitimate means to express their anger.75 Apart from the greater political representation of the mainstream MB who renounce violence, economic development is important, especially in the Sinai Peninsula, where many terror attacks now take place. In addition to a military campaign against extremists and a lack of public support following the Luxor massacre in 1997, President Mubarak used the Toshka Canal project near Aswan to attract business investment in Upper Egypt. This helped to quell the insecurity stemming from Islamist groups by providing economic opportunities that would encourage greater support for the state.76 But the associated agricultural schemes of Toshka represent another megaproject, one that favors the "new, new lands" over supporting tenants on existing fertile lands such as those in the Nile Delta.77 This again indicates that megaprojects can exacerbate problems in the political economy if they are pursued exclusively and at the cost of other vital sectors.

On relations with the MB, President Sisi has a popular mandate. Fears of a total state failure and violent Islamist insurgency, such as those evident in Syria, Iraq, Libya and Yemen, are clearly driving policy and buying the military more time. It might mean that the Egyptian government resists further calls for political reform; however, much will depend on Egypt's GCC state allies. If King Salman tries to reflect some Saudi sympathies for the MB or increase national unity amidst a plethora of external threats and normalize government relations with the group (as seems evident already), it is possible that President Sisi will have to follow suit by decriminalizing and possibly initiating talks with the MB.78 However, any moves will also be tempered by what the other GCC states do. For the UAE, ideology is an important factor in foreign policy, since political Islam could undermine its monarchical legitimacy, and violent Islamism could be targeted at the ruling elite or economic interests due to the state's close security and defense relations with the West. The UAE's secular system is fundamentally at odds with MB ideology and that of more extremist groups such as ISIS, therefore a rapprochement is not expected soon.

EGYPT-GCC-STATES ALLIANCE

Egypt's relationship with the GCC states has oscillated from primarily an Egyptian-Saudi alliance to an Egyptian-Qatari alliance during the Morsi era, back to an Egyptian-Saudi/Kuwaiti/UAE alliance under Sisi. The opportunism of Doha through the personal politics pursued by Sheikh Hamad bin Khalifa Al Thani meant that Qatar also supported the MB during the Arab Spring in states such as Tunisia, as well as Hamas in Palestine. In contrast to its support for Islamist groups abroad (in addition to its more conventional relations with powers such as the United States), the influence of Islamism within Qatar is limited.79 The Egypt-Qatar relationship was one of opportunism and pragmatism. As Springborg notes, it was the Suez Canal project, by threatening to sideline the Egyptian military and its economic interests in favor of a joint megaproject with Qatari funding and the involvement of MB companies, that helped bring the SCAF back into the political frame in July 2013. It was the military's control of economic sovereignty rather than the Suez Canal project that represented a national-security issue.80

After President Morsi was removed, other members of the GCC, such as Saudi Arabia and the UAE, put pressure on Doha to give up its unconditional support of the MB and conform with the group's common foreign-policy preferences.81 Although there remain strong societal ties — the number of Egyptians living in Qatar recently reached 220,000 — tension continues to exist between Qatar and Egypt, mainly due to Qatar's providing shelter to Egyptian MB personalities and the Al Jazeera news channel. In addition, Tarek Adel, the Egyptian delegate to the Arab League, is reported to have said in February 2015 that Qatar's deviation from the consensus of the Arab League in support of Egyptian attacks against ISIS targets in Libya was "... revealing its position that it is supportive of terrorism."82 However, the other GCC members appear to have backed Qatar on this occasion, stating that the Egyptian claims were false.83 Unless events warrant another spat with Qatar, it is unlikely the GCC states will want to allow any further public discord that could threaten its efforts at consolidation and integration.

Egypt and Saudi Arabia are two dominant Sunni states in the Middle East with similar cultures and ideological orientation. Although Egypt lacks significant oil revenues, it does have impressive manpower. It was therefore unsurprising that the Arab League, which brings Egypt and the GCC states together in the same forum, announced a joint military force to address common threats.84 Indeed, Egypt-GCC-state security relations are so close that President Sisi recently talked about Egyptian national security as being synonymous with GCC-state security.85 It is probably also due to the fact that, apart from underwriting many of Egypt's economic-development costs, the GCC states are also underwriting some of Egypt's defense acquisitions, such as the Rafale fighter jet from France. This would help Egypt diversify its defense partners for maximum relative autonomy internationally, following the GCC-state defense model.86

However, there might be some recalibration in the Egypt-GCC-state relationship in the coming years depending on threat perceptions, leadership styles, the availability of high oil revenues to fund the national budget and external costs, and GCC internal instability. There is conjecture that the oil price drop from 2014 could compromise GCC-state spending in countries such as Egypt, especially if austerity continues.87 This is unlikely in the short term, at least, but Egyptian politicians should be aiming for maximum political independence, which will come from a rapidly growing economy rather than remaining tied to GCC national interests. Furthermore, while GCC-state aid helps in multiple ways, from financing megaprojects to supporting the Egyptian pound through injections into the central bank, these do not necessarily address other systemic and long-term economic challenges. What is needed, therefore, is an enhanced form of FDI with additional advantages, such as knowledge transfer, which can facilitate recovery, the establishment of new productive sectors of the economy and job creation.

The ideologically compatible bloc of the GCC states plus Jordan, Morocco and Egypt remains important on a number of fronts but does not amount to a cohesive alliance per se. Since the security situations in Iraq, Syria, Libya and Yemen have deteriorated, Middle Eastern states have struggled to act in concert, noted by Gause as "underbalancing," with particular regard to the Iranian threat.88 In addition, there are relatively few Middle Eastern states able to address the rising terror threat from al-Qaeda and ISIS. Already Egypt and the UAE have conducted somewhat ineffective aerial attacks against Islamist bases in Libya, demonstrating a combination of political will and independence of military action that President Obama had been calling for but not expected.89 The combined action might be due to the complementarity of the Egyptian air force's modern air-to-surface weapons (but with a limited ability to sustain high sortie rates90) and the precision-guided munitions of the UAE air force in the Mirage 2000s.91 It is also interesting to note cooperation between the Egyptian and UAE air forces, not known for their compatible military doctrines. Greater coordination on military operations in a range of theaters could signal a commitment and convergence of threat perception necessary to sustaining a series of bilateral partnerships. However, if the Obama administration fails to lay out an effective plan on Syria involving a range of NATO allies, and the UAE or other regional states take a similar response to that demonstrated in Libya, the results could lead to a "rolling disaster"92 and a heightened risk of blowback.

EROSION OF SOFT POWER

Egypt's position in the Arab system has been under threat since the demise of pan-Arabism, the second onset of globalization in the 1990s and expansive economic development programs undertaken by members of the GCC. Calculating Egypt's soft-power erosion depends on how you measure soft power. Taleb argues that Egypt's soft-power status was restored with the changes to the new draft constitution in 2013.93 While these changes might have boosted confidence in the Egyptian judiciary at a critical time, they are unlikely to represent a wholesale transition to re-establishing Egypt's broader soft power in the Middle East. What is missing?

The term "soft power" was coined by Joseph Nye in the late 1980s, as the ability of a country to persuade others to do what it wants without force or coercion. In Soft Power: The Means to Success in World Politics, he states that it is about cooption rather than coercion and rests on the ability of a state to shape the preferences of others. Seduction and attraction are therefore important elements of soft power, which goes beyond the mere influence that can be exercised through hard power.94

Soft power is intended to be employed in conjunction with a state's foreign-policy objectives, although in the Egyptian case this does not appear to have shifted much since the Tahrir Square demonstrators did not mention foreign policy specifically.95 There may be some implication that the erosion of Egyptian prestige internationally under Mubarak equates with greater subservience to U.S. and Israeli interests, showing how some domestic and foreign-policy issues might be interlinked. In extreme cases, this could even be compared to the Palestinian experience of Israeli occupation.96 The democratic experiment is probably one of the most important sources of soft power for many Middle Eastern states vis-à-vis the West, although in terms of regional democratic trendsetting, Tunisia appears to be further down that road.97 Egyptian TV programs, songs and movies remain sources of great influence across the region and explain why most Arabs understand the Egyptian colloquial dialect and continue to use it, although the popularity of well-known Egyptian authors has faded since the 1970s.98

Egypt achieved an early lead in the sphere of education, and until recently it was mainly Egyptians who staffed schools and government ministries in the Gulf. Over the last decades, however, other Arab states have been moving up and are better able to compete. It partly comes down to economics: oil-rich states have more funds to invest in important soft-power tools. Examples include satellite branches of world-class educational institutions such as New York University, INSEAD and the Paris-Sorbonne University in the UAE, and Georgetown University, Cornell University, HEC Paris and Texas A&M in Qatar. The same is true of other sources of soft power. In the UAE, for example, these include tourism sites such as the Burj Khalifa (the world's tallest building), the Palm and Dubai Mall (the world's largest) in Dubai, and Ferrari World, the Guggenheim Museum and the Louvre Museum in Abu Dhabi. The greatest draw to these nodes of soft power is among Saudi youth, 36 percent of whom want to live in the UAE, as do 35 percent of Egyptian youth.99 This hasn't gone unnoticed by the Egyptian government. In their plans to draw up a new administrative capital, they have included a new theme park four times the size of Disneyland.100 However, unlike the UAE, which is able to draw on oil revenues, substantial foreign investments and tax receipts from burgeoning domestic industries, not all of Egypt's expected costs — estimated at $45 billion — have yet been covered, so there remains some uncertainty as to how it will develop over the next seven years. Furthermore, following the November 2015 bomb attack against a Russian civil airline flying from Sharm El Sheikh to St. Petersburg and the Hurghada attack in January 2016, tourist confidence in Egyptian security has once again come into question.

As television news has expanded among youth, Al Jazeera rather than Al Ahram has become a regional force and a controversial extension of Qatari state interests. For example, tensions between Qatar and the Egyptian government boiled over in December 2013, when Egypt arrested three Al Jazeera journalists on accusations of spreading false news to help a terrorist group (the MB).101 The EU, at the institutional level, has tried and failed to use soft power to effect change in Egypt, primarily through promises of financial assistance, investment, trade and transportation. European-backed NGOs have been closed as the Egyptian government took exception to overt attempts to influence the political system.102 This effort has ultimately failed to induce any significant change.103 This challenge contributed to a review of the European Neighbourhood Policy (ENP) in 2015 and the expectation that a differentiated approach will be adopted towards Euro-Med partners such as Egypt.

Egypt remains a leader in the Islamic world in one very important aspect of education, culture and religion: Al Azhar University and Mosque. This institution plays a vital role in religious studies (including the training of some 10,000 imams per year) and in Islamic jurisprudence. It is significant to the GCC states, in particular, because Al-Azhar-trained imams have been a factor in their domestic security calculus since 9/11. This gives them a vested interest in Egyptian domestic politics that states such as the United States do not really have.104

CONCLUSION

The current government could do more to generate greater confidence in the political system among youth, greater confidence in the economy among potential investors and greater confidence in national security among tourists and residents alike. A new, functioning Egyptian parliament will be an important step in rationalizing the "deep state" and giving voice to ordinary citizens, potentially reconciling political extremes and integrating the views of civil society, a vital part of the wider socioeconomic solution to Egypt's various challenges.

A military that maintains a large stake in the national economy — and under preferential terms — is problematic to Egypt's overall development; a range of security-sector reforms need to be addressed in order to remove ambivalence over how the rest of the economy (or, indeed, society) operates. Defense spending may have to rise to compensate for lower revenues due to greater regulation, fewer land rights, fewer subsidies, more competition and a greater tax burden. Some military companies clearly play a constructive role in society, but it is one that should also be played by a more internationally competitive private sector in order to enhance broad-based economic growth.

As it stands, Egypt has quite limited sources of soft power, although maintaining security equities in the region, especially with Israel, will continue to influence U.S. decision making vis-à-vis Egypt. The Suez Canal is also a useful geostrategic and economic resource along with possibilities associated with the Zohr gas field. However, lacking large oil reserves, Egypt cannot replicate the GCC-state rentier model. It should therefore pursue a broad-based economic strategy that closely aligns economic and foreign-policy priorities, limits special interests and pursues an economic-development trajectory similar to that charted by Southeast Asian states in the past. Fundamentally, an export-oriented approach and integration into the global economy will be required, although not necessarily including the pursuit of an unbridled free-trade agenda. In terms of other sources of soft power, the government should ensure that the highly respected and internationally recognized Al Azhar Mosque and University continue to be independent and able to promote (Islamic) education and tolerance across the social spectrum. If Egypt's position as a pivotal state in the dual alliance of the GCC states and the United States weakens, it will at least have set solid foundations for its continued economic, social, military and political growth. This will help re-establish Egypt as a more independent and formidable regional power.

1 Martin Beck, "The Concept of Regional Power as Applied to the Middle East," in Regional Powers in the Middle East: New Constellations after the Arab Revolts, ed. Henner Furtig (Palgrave 2014), 4.

11 John Chalcraft, "Egypt's 25 January Uprising: Hegemonic Contestation, and the Explosion of the Poor," in The New Middle East: Protest and Revolution in the Arab World, ed. Fawaz Gerges (Cambridge University Press, 2014), 178.

12 Mamoun Fandy, "Egypt: Could It Lead the Arab World?" in The Middle East in 2015: The Impact of Regional Trends on U.S. Strategic Planning, ed. Judith S. Yaphe (CreateSpace Independent Publishing Platform, 2012), 60.

97 Mohammad Selim, "Where Have All the Democratic Expectations Gone?: Tunisia and Egypt in Comparative Perspective," in Democracy and Reform in the Middle East and Asia: Social Protest and Authoritarian Rule after the Arab Spring, eds. Amin Saikal and Amitav Acharya (I. B. Tauris, 2014), 30.

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